 Did I hear someone in that prior panel say, if you're against toxic maximalism, you were against Bitcoin and you're against freedom? Yeah, that's some bullshit. We got him warmed up. Few figures in the Bitcoin community are as controversial and visionary as Eric Voorhees, founder and CEO of the Cryptocurrency Exchange, ShapeShift. He drew cheers and occasional booze at Bitcoin 2021, the recent Blockbuster Conference in Miami. Back when Cryptocurrency was in its infancy, Voorhees was helping to popularize Bitcoin's unique attributes with an unregulated online casino called Satoshi Dice. After he sold, Voorhees was investigated by the SEC and paid a $50,000 fine, observing that the investigators didn't even seem to understand Bitcoin. As much as I hated government before, he recalled, then I was like, man, this is what these people do, go around ruining innocent people's lives. Unlike Bitcoin maximalists who insist that Bitcoin is the only cryptocurrency with any viable future, Voorhees maintains that other coins do serve a purpose. I love seeing all the crypto projects coming together with with the financial institutions. I think some people in crypto don't like that, but I see crypto taking over the world and that doesn't happen without bringing basically everyone into the tent. In 2017, as fees on the network were climbing, he controversially backed an unsuccessful attempt to scale up Bitcoin's ability to process transactions, which critics said would have weakened the network security and decentralized structure. At the Bitcoin 2021 conference in Miami, Voorhees talked to reason about the immense growth, not just in the market caps of cryptocurrencies, but in their economic and cultural legitimacy, the ways in which they challenge central banks and political power and why he believes in multiple coins and continuing innovation in digital currency. Eric Voorhees, thanks for talking to reason. Yeah, thanks for having me on. So we're at Bitcoin 2021 in Miami. There is something like 12,000 people here celebrating the Bitcoin-ness of Bitcoin. You were a very early adopter, evangelist player in the space. How do you feel about that when you look back a decade or so ago, where Bitcoin was at, and now this kind of massive conference coming up? Yeah, well, I have two thoughts, I think. The first is that I'm really happy to see it growing. You know, the whole purpose of it was to change the whole financial system of the planet. So you don't do that without it becoming big at some point. So that's great. There's like most of the people here I don't recognize. So it's a sign that the whole industry is growing. But there's also, you can just tell that there's still a lot of people that are in it for very superficial reasons. What are the superficial reasons? Well, a lot of money is made in Bitcoin. And especially during the rally cycle period, you have a lot of people that make a bunch of money and they like it for that reason and that's it. And many of them ultimately learn why it's important and how it works. But there's always this superficial veneer of people that are in it for, I would say, not the right reasons. So there's a lot of that. But that's to be expected. I mean, it's kind of the same people that might have been in hard money in the early 70s or something when it became legal to own gold again. That same mentality. Were people making a lot of money? Well, some people, the people charging transaction fees, I assume are. Yeah, yeah, perhaps. What is, so what is, I mean, and obviously you're not against making money. But when you say people come in because there's a lot of money to be made, what's wrong with that? Or what are they misunderstanding about Bitcoin? Yeah, there's nothing wrong with making money. If you're being honest about it. But what they're missing is why Bitcoin is rising, the price or the ecosystem generally. Why is that happening? And that's because it's the best form of money that has ever been created. And why is that true? And how does that, how is it differentiated from fiat currency? Why does humanity need it? Like these very existential questions are obviously much more important than the price. So the price often attracts people in and that's fine. But they need to look deeper and start understanding what's important about it. What are some of the markers for, you know, that, that, that the planet is kind of getting to understand that, you know, that this, it's, it's not about, you know, a speculative run up that where you can cash out and make a lot of money, but rather it's a change in the way money or all currency might be done. How do we know we're getting closer to that? I think just the, the diversity of people that are interested in it now. So 10 years ago when I got interested in it, it was a bunch of cryptographers who are really into the science of it and then a bunch of very radical libertarians. And those are like a small Venn diagram group. And so now there are people from all over the world, all different backgrounds, all different political persuasions, people that are interested in it for different reasons. Crypto broadly has expanded beyond money. So there are people that are in it for, for the artwork and, you know, the music and the NFTs and all that kind of stuff that's happening. So it's just becoming a much more diverse community. I think that's really healthy. Do you remember where you were when you first, you know, kind of encountered Bitcoin? Yeah, I was sitting in a loft in our small apartment in Portsmouth, New Hampshire and saw a Facebook post from a friend. I was in the Free State Projects back then. So a friend in the Free State Project posted about it. And I read the article. I was very dismissive of it. Thought it sounded like a scam or stupid. I read another article, another article. And then like within 30 minutes, I was pretty hooked. So that was, that was May 8th of 2011. Yeah. What drew you to the Free State Project? And is there, is there a, what's the connection between kind of the Free State Project and Bitcoin, if there is one? Yeah. So I joined the Free State Project before it heard of Bitcoin and it is essentially a goal of moving a bunch of fairly radical libertarians to one small geographic area, so that there would be an outsized influence on the political environment. And I felt that that was the best thing I had seen to cause a change toward liberty in a way that I could actually contribute to. And while I was there and I learned about Bitcoin, I realized Bitcoin was just so much more powerful because it doesn't require voting. It's not about a small geographic area. It's about the entire world and it just seemed like the most profound technology I'd ever seen. So that kind of whisked me away into that whole world. But the, the spirit is a similar one. Yeah. You're in Denver now. Do you, why did you leave the Free State Project? So I left New Hampshire to move down to New York City to join Charlie Shrem at Biddleston. So that was one of the first Bitcoin companies. I was down in Brooklyn for eight months. You were a pretty vocal multicoyner. A lot of people are into blockchain or crypto, but obviously Bitcoin are, no, you know, Bitcoin is the thing. Like why, you know, this would be like a gold bug playing with silver and other valuable metals. What's the case for having multiple coins or multi-coin? So I used to not be that. I used to be very much a maximalist, meaning I thought only Bitcoin should exist. Everything else was a waste of time at best. And my views on that changed when I realized both that a lot of these assets were not trying to just be different cryptocurrencies, they were trying to be materially different assets that did different things. And also that part of the decentralization of Bitcoin is improved when you have multiple assets. So if you are an advocate of decentralization, but you only want there to be one blockchain, that is a little bit hypocritical, counterproductive. So part of the part of the decentralization of Bitcoin, I think, happens with these other assets. What is what's a good example of a non-Bitcoin that is, you know, providing something distinct from Bitcoin in terms of whatever. So an easy one are like the privacy coins. So Bitcoin in the early days, people talked about it being anonymous. It's obviously not. It's highly trackable, highly transparent. And many people still believe that anonymity is important and that people have a right to privacy in finances. And so people have built cryptocurrencies that are very private, that are actually cryptographically anonymous. And that's that's great. So that use case exists and people should have the ability to use those things. Bitcoin did not have to change its whole code base to offer it. So now people have both. And I think that's that's a richer environment than if there was just one thing trying to meet everyone's needs. Do you worry, you know, that a lot of the other coins and other tokens and things like that, you know, some of them rise and fall or disappear or scams. What's the best way of kind of policing that is it? I doubt it's a regulatory regime you would push, but is it mostly end users being wiser or how do you how do you maintain a kind of clear system? Yeah, a good analogy is is the dot com world in the late 90s. And you had all these companies forming, they added dot com to their name and suddenly they're worth a billion dollars. And obviously, a lot of it was garbage. Some of it was scams, but a lot of it just didn't work out. There wasn't a regulator needed to weed that out. The market is the regulator, the market weeds out unuseful things over time. So even though it's a noisy and chaotic industry, I would not want some regulator to come in and pick and choose which of these things are appropriate currencies for people to have, because if that regulator existed, they would have told people to just stick with dollars and Bitcoin itself would never have been created. Do you worry, think about the dot com bust and it was interesting at the time people are like, OK, this proved that the internet and the web is bullshit. And, you know, that was clearly wrong. And the things that were of value, which often, you know, took real dives, but they persisted. Whereas the more ephemeral things just disappeared without anybody really caring. But the political and kind of social and to some degree, economic dislocation caused by that kind of bubble and burst. And this is not one that was created by the government, really, you know, unlike the housing crisis, this was a speculative bubble because a new technology had created a kind of land rush. Do you worry that that kind of bubbling up and then the crash actually creates the conditions for a massive kind of political overreaction into a regulatory state? Or how do you how do you hedge against that? Unfortunately, most things seem to cause an overreaction from politicians. They tend to want to fix everything and everything they try to fix, they break. So I don't think the bubble is unique in that regard. Certainly, Bitcoin and the crypto industry have gone through a few of these bubbles. And each time they pop and there's a bear market, a bunch of people have that same kind of dismissive attitude that this is evidence that the whole thing was not legitimate. And I guess it's just that people don't understand how markets work, that this process of creative destruction is really important. It's an iterative process. And nobody knows which of these technologies are going to be the future. So it's a messy process of trial and error. And we need to just need to let that play out. Do you think people are becoming more impossibly broad question? But do you think people are becoming more comfortable with that kind of fluctuation or volatility or mix or are people be shrinking away from that? If they've gone through it before, they're more comfortable with it. The new the new group, you know, every year, a new cohort of people enter the space. And when they go through their first bubble, they get carried away just as the prior bubble did. You know, it's very emblematic of the human condition that you get pulled into speculative bubbles. And until you've gone through that a few times, it's hard to it's hard to perceive it. Back in the day, you were part of the conversation about Segwit and about changing the block size and the ability of, you know, the number of transactions that could be completed at a certain time. You were dragged for that because you you were an advocate of expanding the block size. It didn't happen. But transaction capacity kind of grew. Fees have changed. Where are you on all of that now? It's a nuanced topic. And unfortunately, it has often been framed as people who wanted no block size limit and people who wanted the status quo. And it was much more of a rich conversation than that. I was always somewhat pragmatic about it. You know, I certainly didn't think that the block size should just be expanded forever. Like that has obvious problems. But I also didn't think that moving the block size from one megabyte to two megabytes would destroy Bitcoin. Like, I was not so insecure about Bitcoin as to think that that would somehow invalidate it. And there was a long debate about this, you know, a couple of two, three, four years. And it got worse and worse to the point where important upgrades like Segwit, which Bitcoin really needed for other reasons, but also provided additional capacity, were getting blocked because there was just no agreement on how to move forward. So in 2017, there were a number of us that basically tried to bring these these mining interests who wanted larger blocks and the Segwit community who wanted Segwit together and figure out a way to, like, have both these things happen so that Bitcoin could move forward and not just be stuck in the same debate forever. So that all went poorly. It was an interesting lesson in how a community organizes and governs itself. And ultimately, Bitcoin adopted Segwit, which is great. It ultimately did not adopt a larger base block size, which is OK. And it moved forward. So like it got through that period and now it's behind us. So ultimately, I think the people that really wanted, you know, purely larger blocks can go into other coins now. And this is part of the diversity of this technology is that people can express their preferences and use whatever technology suits them. You know, it's an interesting question with a distributed technology instead of participants of market. How do you reach consensus in for shape, shift your company at a certain point you went from being a company that prided itself on not really needing to know anything about the customers or the people coming together to transact to putting in and know your customer rule. Can you talk about that experience and what were the lessons that you learned from that? Yeah. So as mentioned, I've always believed that people have a default right to privacy. If someone is not even accused of a crime, they should have a default right to privacy. That is an increasingly rare and shocking statement. But I know for thank you for very few people will even say that. And I don't know why it doesn't seem like that extreme of a position. People believe that they should have privacy in their homes and that like curtains are not illegal and locks on your doors are not illegal and no one would look at you weird if you advocated for those things. But if you advocate for privacy and finance somehow that are you. Well it's a yeah and that would be the same argument against the curtains right you want curtains on your window why what are you doing in there what are you doing that needs to be hidden from view and that's a really dangerous road to go down. You shouldn't have to answer what you're hiding in order to be an advocate of privacy. So I've always been an advocate of that and when shapeshift started we did not require anyone to provide an ID for the service. So it's a quick and easy way to convert one digital asset into another. Our legal opinion at the time was that we didn't need to do that because we weren't handling actual currency like money of a government and we weren't taking deposits and in 2018 we had done a lot further analysis and we came to the conclusion that we were probably going to be treated like a financial institution and thus would have to start acting like a bank and thus would have to violate privacy of our users and impose KYC on them stands for know your customer and take their their ID and all this all this stuff that none of the customers wanted and we didn't want and I had an ethical aversion to but we did it you know essentially underdress we thought regulators would come after us and that was a scary time. So we implemented KYC customers hated it we lost you in like 99% of our business like absolute evisceration of the entire model that we had built because all this customers just went with other other competitors that weren't doing that you know and that weren't as scared of us regulators so that was a hard time we've turned us around such that we do not anymore provide regulated services so we've integrated decentralized protocols now so when someone does a trade on shapeshift it's happening through a decentralized protocol and that means we're not an intermediary it means that we are not a financial institution and it means we do not any longer need to have KYC so we've actually been able to get back to a position of maintaining privacy and protecting users in that way. What I mean you did that you know because you were expecting a crackdown and you know which particularly in kind of cyberspace or digital culture you know that's what always happens and what are the what are the kind of regulatory actions or frameworks that you worry the most about that's going to impinge on blockchain and crypto. I mean the main problem is that you have regulators and you know in the U.S. and around the world their entire job and reason for existence is to surveil and control the flows of money and then you have Bitcoin and this crypto world that is created and it is impossible to stop can't really be surveilled in the way that the regulators want and can't be controlled by them. So it's like you have these two forces now just clashing with each other. Regulators that want to control something which cannot be regulated and all of the crypto businesses and individuals involved in this are like right there in the middle trying to figure out where the the nuances of that you know clash are and none of the regulators know how this is going to end up none of the businesses know how this is going to end up it's very costly you know every crypto company spends a ton of money on lawyers just trying to navigate these rules. Are there any in the United States are there any politicians or analysts who you think are particularly influential and problematic in terms of what they're what they're proposing in order to kind of you know take the curtains off of crypto. We have not yet seen to what degree Biden's administration will change policies from the Trump administration. Generally each new set of politicians tends to create a new set of problems but we haven't seen anyone specifically that's far better or worse than anyone under Trump we probably need another year or two to to know. Certainly Steve Mnuchin under the Trump administration was pretty awful. He loved posing with pictures of fiat currency right? That picture of him with the printing with his beautiful wife and the printing of the money is like just such a so emblematic of everything that that bitcoin is opposed to. The ability that like any politician would would just be allowed to create money out of thin air that everyone else in the world is forced to work for throughout their whole lives and can just be debased and he sits there with this like smile on his face like he knows so bad and thankfully we don't have to ask his permission to use alternatives so as bitcoin grows people will just move to it and he's going to be left holding a bunch of paper. Does the fact that bitcoin hasn't emerged as a medium of exchange you know it's working more as a kind of store of knowledge does that disappoint you in any way especially going back to the early kind of vision of bitcoin as a payment system? It disappoints me a little but it has been so successful despite that that I can't get too upset about it. Certainly those of us in the early days thought that the way that we get adoption is to convince more and more people to accept it as a form of payment and at some point you get past a certain critical threshold and then everyone's paying each other with bitcoin. Obviously that has not happened and yet bitcoin has grown into this you know trillion dollar asset and I think what we did not appreciate was that the payments is an attribute of money that's important but is not really the most important for bitcoin. The stability of the protocol the soundness of the currency supply the transparent immutable ledger these are attributes of a money that are really unique and have given bitcoin value despite it being inefficient for small payments and it's also you know not fair to say that it's never used as a medium exchange you know we're here at this bitcoin conference lots of people bought their tickets with bitcoin I can send bitcoin to people all over the world. Reason foundation the nonprofit that publishes reason tv accepts bitcoin. Yeah so people can use it you know it works as a form of payment it's that is just not it's killer app. Right what what do you make of it does seem you know certainly in places like China where there's a kind of growing attack on bitcoin as a reality in the United States there's you know gathering storms to regulate or limit it and whatnot. Do you see that also as a sign of its success that governments are now really starting to pay attention to it. Yeah well and interestingly the governments tend to pay attention along with the price also. So the whole world forgets about bitcoin in the bear market. And the whole world gets very excited and interested in it during the bull market. The regulators are no exception to that. Yeah you know in China it's kind of the same as in the U.S. and that they want to control money. They have their their digital yuan now and they are trying to have a form of money that they have pure and complete control and observation of. Extremely Orwellian and then there's bitcoin which they can't stop. You know the the mightiest government in the world can't turn off bitcoin. Do you worry I mean a government like China is more openly authoritarian and is not a verse to cracking skulls in a way that a lot of kind of Western European or OECD countries are. Do you worry that they are it's going to become a violent showdown between kind of bitcoiners and authoritarian governments. Hopefully it won't become literally violent but it certainly is already figuratively violent and that these governments are using coercion to influence what the market would ultimately prefer to do. So I think that will get worse. Most governments do not believe that the that bitcoin is an actual existential threat to their fiat currency. Is it. It absolutely is. And I'm glad that they have the hubris to not see that. So the longer that persists the better. But yeah ultimately people are going to realize at the margins that if they're working for money and they save some of that money that they should save it in a form of value that can't be debased by politicians. Other than one that is you know losing two to five percent of its value every single year. People will learn over time and they will move to bitcoin. Do you you've written about you know when fiat currency starts to kind of lose its you know whether it's through inflation or other measures where it loses its purchasing power its ability to actually be useful to people that bitcoin or and other kind of crypto coins are going to become much more obviously the place to go and that governments are going to come after them. Can you walk through the scenario say whether it's in the United States or the country you think this is going to happen first where bitcoin becomes the preferred alternative and how governments kind of respond to that. Yeah it won't be the U.S. right it's and it's not going to be the the big major countries with reasonably you know reasonably stable currencies. It's going to be the Argentinas of the world the Zimbabwe's of the world Nigeria's of the world where bitcoin will actually become more commonly used as a form of money and I think you know it's at the end of the process that the dollar itself gives way to bitcoin as a superior form of money. It's incredible that it has gotten as far as it has already you know like the zero to one was so much bigger for bitcoin than from here to domination of the dollar. It is already a trillion dollar asset class it is one of the largest currencies in the world like it is in the top 10 currencies of the world most people don't realize that. I heard I haven't fact checked this that behind the dollar the euro the yen and treasury bonds the bitcoin is like the fourth or fifth most liquid traded market in the world today. So it's gotten absolutely massive and this is still before lots of widespread adoption. Is there a particular country or maybe market where it's effectively going to be bitcoinized where bitcoin will be the reserve currency. Well there's very interesting game theory for some of these smaller countries that don't have the reserve currency of the world they may be poor and they might be looking for a way to leapfrog in the country ranking and the wealth of their people historically over the last 10 years any of them that had decided to put some of their treasury reserve into bitcoin would have leapfrogged many other countries and I think some of them will actually take that gamble they realize like we can go buy 100 billion dollars of bitcoin sit around for 10 years and suddenly be one of the wealthiest countries in the world. And that game theory is going to play out you know and the last country to buy bitcoin is probably going to be the United States and there's going to be all these countries you know with huge reserves of sound money while the US has you know paper printing from the nation. You have called yourself you are a radical libertarian where did that come from where did that belief system or a set of ideas come from. Yeah unfortunately being a radical libertarian today is kind of just like being how I feel like the early Americans were they just advocated freedom consistently and that that now makes me an extremist. So I certainly feel alien in the US as someone who advocates freedom that's weird. You know that should not be the minority position. Where did it come from for you. I've just always felt that if you're not hurting other people then you should be free. You know that seems like a very reasonable foundation on which to build a society. And so I just think through that consistently you know that means taxes should be as low as possible. Maybe they can go away entirely. It means regulations shouldn't impede on people that aren't harming each other. It means consenting adults should be able to do whatever the hell they want. As long as you're not like defrauding someone or physically harming them then you are a peaceful market participant and the rules and posts on you should be pretty minimal. Are you optimistic. I mean you know and this is something that it's not just libertarians often have a kind of end of world or end of days feel about them but some of the things you mentioned you know in terms of say the drug war in terms of marriage equality or a more broad acceptance of alternative lifestyles things reason has been around since 1968. All of these things have come true innovation continues to proceed. You know there are questions like national debt and you know regulations and occupational licensing criminal justice reform which also seems to be moving in the right direction. Overall do you are you optimistic or pessimistic about the chances for a kind of libertarian society. Pessimistic in the short and medium term. The drug war is sort of one of the one of the exceptions to this rule where it's actually becoming more free. marijuana is getting legalized in most places. That's there are not many places not many topics on which I feel like government is getting less intrusive. So I'm not bullish on that in the short term. And I feel like culturally the general public wants more and more from government not less and less. Why do you think that is if our ideas broadly speaking are kind of self evident and pragmatic. Why do people want more government. Most of them went to public schools that were funded and organized by the government. I mean I think a lot of people have grown up to look at the government as their helper which is a very different notion of government than government as a protector of liberty which is was supposed to be how the United States government was set up. It was there only to protect liberty and nothing more. And today it is looked at almost like a parent figure that helps you in your struggles. And that's a very dangerous road to go down because struggles are endless and that means that government will get increasingly large. And you can just look at the debt of the government to realize that you know people want more and more and more and I don't see that stopping any time soon. And there's a kind of munch-housing syndrome by proxy right when you think about the economic crisis in 2008 government pumps up the housing market which crashes then comes in to rescue people who are hurt by falling housing prices etc. So I'm not I'm not bullish on it but But in the long term you are. In the long term I am only because there will have to be some kind of reset and that reset probably materially can come from an actual bond market collapse in the U.S. Treasury market. The debt of the United States is not sustainable you can run any projection of the next 10 or 20 years with any assumed interest rate and realize that soon the interest on the debt will become more than the entire tax base of the country and the bond market has to collapse. When that happens it's going to be a very dark period. I hope that's a short dark period and I hope that I hope that clear minds rise out of that instead of you know an even darker Are you convinced that people holding bitcoin when that happens when that shit hits the fan will they be able to keep bitcoin out of reach of the governments that are going to be coming looking for every scrap in the cupboard that they can commandeer. So yeah some of them will you know we will see if there will be like a similar gold executive order where it was confiscated it is very easy to hide bitcoin if you know what you're doing. So anyone who's confident in that technology you know can say they don't have any bitcoin or that they got rid of it and there's no way to prove that they still have it. It is an extremely powerful technology for individuals. It is an equalizer no matter how much money the government has no matter all their guns and weapons and force and violence they can't break bitcoin and they can't they can't take all the bitcoin from people. So it's a it's a magical technology and it's one of the bright spots in society right now. All right we're going to leave it there we've been talking with Eric Voorhees of ShapeShift thanks so much. Thanks Nick.